If you’ve been told that C corporations are always bad for small businesses because of “double taxation,” it’s time to reconsider. Recent changes to tax law have made C corporations an attractive option for many small business clients, and your business might benefit too.
The biggest advantage of a C corporation is simple: if you don’t need to take all your business profits out immediately, you can save significant taxes by leaving money in the company. C corporations pay a flat 21% tax rate on profits, while you might be paying 35% or more on your personal tax return.
Let me give you a real example. Sarah runs a successful consulting business making $500,000 annually. She wants to keep $200,000 in the business to build up cash reserves and fund growth. As a C corporation, she’d pay $42,000 in corporate taxes on that retained money. If that same $200,000 flowed through to her personal return, she’d pay about $70,000 in taxes. That’s a $28,000 annual savings just by choosing the right business structure.
Here’s where things get exciting. New legislation passed in July 2025 dramatically improved the tax benefits when you eventually sell your C corporation. Previously, you had to hold your business for five years to get maximum tax benefits. Now, you can get substantial tax breaks with shorter holding periods.
If you sell after three years, you can exclude 50% of your gain from taxes. After four years, it’s 75%. The full exclusion still requires five years, but now you have options. Plus, the maximum benefit increased from $10 million to $15 million in tax-free gains.
Jennifer started a tech company in August 2025 and sold it four years later for $20 million. Under the new rules, she excluded 75% of her $18 million gain from federal taxes, saving her over $2.4 million compared to other business structures. Even with the remaining 25% taxed at higher rates, her effective tax rate was only about 28%.
C corporations can also deduct business expenses that other entities can’t fully deduct for owners. If your business pays for your family’s health insurance, that’s a $30,000+ annual deduction for the corporation without creating taxable income for you. The same goes for life insurance, disability coverage, and other employee benefits.
This is especially valuable for professional service businesses like law firms, accounting practices, medical offices, and consulting companies, where the owners want comprehensive benefit packages.
I’ll be honest with you: C corporations aren’t right for everyone. If you need to take most of your business profits out as cash each year, the double taxation issue can hurt you. The corporate tax rate of 21% plus personal dividend taxes can push your total tax burden close to 40%.
Real estate rental businesses also typically don’t benefit from C corporation status due to how rental income and property sales are taxed.
If you’re building a valuable business that you might sell someday, or if you can afford to leave profits in the company for growth, a C corporation could save you thousands of dollars annually and potentially millions when you sell.
The window of opportunity is especially important right now. To get the enhanced sale benefits, you need to issue stock after July 4, 2025. If you’ve been thinking about changing your business structure, timing matters.
These new tax law changes create significant opportunities, but every business situation is unique. The potential savings are substantial enough that it’s worth having a conversation about whether C corporation status makes sense for your specific circumstances.
We would be happy to review your business situation and run the numbers to see if you could benefit from these changes. The consultation could potentially save you thousands of dollars annually and position you for significant tax advantages if you decide to sell your business down the road.
Call our office today to schedule a consultation. Let’s make sure you’re not leaving money on the table with your current business structure.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
